Power to the People: Mobile Banking in Developing Countries

The following open letter is a part of the Presidio Graduate School's Capital Markets course. For one of the course assignments, students write a letter to an oversight body, government entity or other appropriate institution. The topic: changing the sector of capital markets that relates to their chosen topic so it reinforces principles of sustainability. Follow along here.

An open letter to Adriana Gomez, Head of Latin America and Carribean Region, IFC

Dear Ms Gomez: Greetings from three students of Presidio Graduate School’s Sustainable MBA program in San Francisco, CA.  As part of our MBA research in Capital Markets, we have been examining the relevance and importance of mobile banking in emerging nations.  We see it as an integral part of the solution to poverty alleviation, because it allows access to capital markets for unbanked people.  Please allow us to review some fundamental implications and best practices and,  in closing, humbly offer recommendations for moving forward in this space. Our research suggests that high entrepreneurship rates in developing economies are a significant point of leverage for building a middle class in the developing world.  Increased access to finance has been shown by the World Bank to have a significant correlation to a reduction in GINI coefficient (less income inequality).  However, lack of access to finance and banking services has been consistently reported to be the biggest factor blocking firms and entrepreneurs in developing countries from growing or launching new business ventures.  Banking rates are notoriously low in developing economies, but mobile penetration rates are high and climbing steadily.  Mobile banking provides a platform from which to offer more opportunity and stability to lower and middle-class citizens in these developing nations, helping to reach development goals in an equitable manner. Appropriate policy and regulations provide an environment in which mobile banking systems and firms can thrive.  Best practices for mobile banking policies include:

• Electronic banking and signatures should be legally recognized.
• Customers must be protected against fraud by implementing disclosure and dispute resolution requirements for vendors. Formation and enforcement of cyber fraud laws will also provide vendor and customer protection.
• Integration of mobile banking platforms should be encouraged to ensure consumer choice, payment system access for agents, and protect against harmful monopolies.
• Remote account customers should not be discriminated against and account opening procedures should be risk-based.
• Non-bank agents (such as stores) should be allowed to provide remote cash withdraw services for greater access and utility for users and agents.

There may be a few additional insights to be gained from looking at M-Pesa.  This service has recently added an interest-bearing savings account, M-Kesho, that further strengthens people’s understanding of saving.  M-Pesa provides an excellent example of a mobile money transfer service that has created best practices in the industry for addressing banking inequities and fostering entrepreneurship.  Some of M-Pesa’s key services that have allowed it to gain rapid adoption include:

• Strong branding and simple messaging for an easy-to-use service
• Scalable agent distribution structure for liquidity management
• Easy and quick customer registration, with rewards for agents
• Simple, affordable, and transparent retail pricing
• Free deposits, with no minimum balance requirements
• Ability to send money to non-customers

Our team would like to offer a few suggestions for next steps in strengthening the success rate of mobile banking platforms in emerging nations.  A successful platform will incorporate M-Pesa’s best practices along with our recommendation of heightened security against cyber theft and consumer protections.  Any successful campaign must reinforce brand awareness and trust; have effective channel management for distribution of service; and use affordable pricing for both customers and stores.  We feel these extra measures will contribute to the alleviation of poverty and the increase in an empowered middle class in developing nations. We thank you for your time.  Within two weeks, we will follow up with you on your thoughts and actions on these recommendations.  If any of these ideas are implemented or considered, please let us know as we would enjoy hearing from you. Kind regards, Justin Bean, Jake Blackshear, and SeMe Sung Presidio Graduate School